As NAFTA Growth Slows, Mexico Should Look South

As NAFTA Growth Slows, Mexico Should Look South

Latin America's major economies avoided the brunt of the global financial crisis, except for Mexico, whose 7 percent contraction in 2009 represented the region's worst decline. The drop-off was primarily traceable to America's recession: More than 80 percent of Mexico's exports go to the U.S., and its major sources of foreign reserves -- oil, remittances and tourism -- depend heavily upon consumption north of the border. The loss of tourism revenues due to ongoing drug violence within Mexico and the emergence of H1N1 didn't help matters.

This year, as the panic subsides, Mexico's economy is expected to return to positive growth of around 3 percent. But Mexico's path to sustainable development remains problematic, due to the risk of political backlash against reforms targeting state-owned utilities and petroleum firms. Fortunately, diversifying its portfolio of trading partners offers Mexico the promise of substantial gains with far less peril.

NAFTA transformed Mexico into an industrial powerhouse in the late 1990s, spurring productivity and exports. By 2000, Mexico's trade easily eclipsed that of Argentina, Brazil, and Chile combined. Policymakers were content to situate Mexico as a "hub and spoke" economy, using preferential access to the U.S. to entice foreign investment.

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